Question
Ashley sells hand-made scarves in a perfectly competitive market for 15 per scarf. Ashley's fixed costs are 10, and she is capable of producing up
Ashley sells hand-made scarves in a perfectly competitive market for 15 per scarf. Ashley's fixed costs are 10, and she is capable of producing up to 6 shawls per week.
a)Use that information to fill in the table below. (Hint: Thevariable cost of the first unit of production equals its marginal cost and total variable cost is simply the sum of the marginal costs up of the units of production up to any particular quantity of output)
Quantity
Total Revenue
Fixed Cost
Variable Cost
Total Cost
Profit= Revenue - Total Cost
Marginal Revenue
Marginal Cost
0
0
10
---
---
1
15
5
2
9
3
15
4
24
5
35
6
49
b)Given the Profit Maximising condition, what quantity of scarves should Ashley produce in order to maximize her profit?
c)Ashley finds a new place to sell and a new supplier so her fixed cost falls to 7 and there would be a change to her variable costs. However, due to a decrease in market demand the selling price has changed to 12 per scarf. Information related to Ashley's new cost and revenue projection is given in the table below. Calculate the new revenues and costs as per this new change and the table below. Does the quantity that Ashley should produce change given the new costs?
Quantity
Total Revenue
Fixed Cost
Variable Cost
Total Cost
Profit= Revenue - Total Cost
Marginal Revenue
Marginal Cost
0
0
7
---
---
1
9
2
2
6
3
12
4
21
5
32
6
46
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